Friday, November 06, 2020

Improving the ACA under gridlock, Part II: Innovation waivers and new revenue sources

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Earlier this week I reviewed the many ways a Biden administration might improve healthcare access and affordability by administrative action, on the assumption that with a Republican Senate majority, major legislation to improve the ACA or revolutionize drug pricing is off the table. The laundry list was courtesy of Elizabeth Warren, except for a final item, maximizing silver loading, would likely have the largest impact on the ACA marketplace.

Now let's think about another non-legislative means by which insurance coverage might be boosted: the ACA Section 1332 innovation waivers available to states. 

Under these waivers, states can propose to change almost any aspect of ACA marketplace coverage -- subsidy structure, metal level, essential health benefits, employer mandate -- in an effort to improve affordability and access. There are tight constraints, however: the proposed alternative must  provide coverage as comprehensive and affordable to as many people as does the existing marketplace design (or rather, will again, with CMS director Seema Verma gone), without increasing the federal deficit. 

That fiscal constraint amounts almost to a Catch-22, as the requirement not to boost spending is on an absolute, not per capita basis. If the state's changes boost enrollment, even while reducing cost per person, the state must foot any excess spending.

I have reviewed potential state innovations many times, e.g., here and here (one major option for states to consider, a Medicaid-like Basic Health Program for enrollees with incomes up to 200% FPL, is enabled by a different ACA provision, Section 1331).

Here I want to focus not on potential alternative schemes themselves, bur rather on fiscal opportunities that have opened up for states in the Trump years and that potentially make waivers more viable. By both accident and design, the federal government has put new money on the table.  Potential revenue sources include:

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1) Silver loading.  In October 2017, Trump cut off direct federal reimbursement to marketplace insurers for the Cost Sharing Reduction subsidies they are obligated to provide to marketplace enrollees with incomes below 250% of the Federal Poverty Level who select silver plans. In response, most states allowed insurers to price the cost of CSR into premiums for silver plans only, since CSR is available only with silver plans. Since income-adjusted summaries are set to a silver benchmark, this "silver loading" inflated subsidies along with silver premiums and created discounts in bronze and gold plans. CBO estimated that silver loading would increase federal spending by $194 billion over 10 years. The silver load varies by state, but the added subsidy dollars have increased the pot that states can access in implementing any alternative schemes. States could maximize silver loading by requiring insurers to make premiums truly proportionate to actuarial value. They could then turn around and leverage their inflated annual subsidy tab in any 1332 scheme.

2) State individual mandates. After the Republican Congress zeroed out the vilified tax penalty for going uninsured in December 2017, several states, including New Jersey, California, D.C. and Rhode Island, have implemented state mandates.  The mandate was extremely unpopular, and a good rule of thumb for states contemplating adding one is 'you'd best make coverage truly affordable.' New Jersey and California have added supplemental state subsidies for marketplace coverage along with or in the wake of implementing a mandate.

3) State health insurance assessments. Here too, states have an opportunity to pick up revenue forfeited by the federal government via a repealed federal tax on all health insurers used to fund marketplace coverage. New Jersey implemented such a tax this year (exempting Medicaid and small group plans), raising an estimated $224 million in the first year, which it plowed into supplemental marketplace subsidies ranging from $20 to $95 per month per enrollee, rising with income, for enrollees with incomes up to 400% FPL (the ACA subsidy limit). While this supplement did not require a 1332 waiver, a scheme that restructured subsidies altogether, instead of tacking a supplemental subsidy onto the existing structure, would require such a waiver.

4) Reinsurance. Almost all 1332 waivers granted so far have provided partial federal funding for state reinsurance programs, which reduce subsidies by reducing premiums, savings that the Trump administration has agreed to "pass through" to the state. Fifteen states have had such waivers approved. While these reinsurance programs have reduced premiums, they also involve something of a Catch-22: reducing premiums reduces premium subsidies and so tends to reduce discounts (e.g., those boosted by silver loading) for subsidized enrollees, i.e. most enrollees. This would not matter much if benchmark coverage were affordable to all, but many subsidy-eligible prospective marketplace enrollees don't find it so, and silver loading discounts have boosted coverage. Still, potential state schemes that do make coverage more broadly affordable could include reinsurance to reduce overall cost. Reinsurance programs implemented to date, however, reduce the pot available, since funding for a Section 1332 scheme is based on past spending.

5. State-based marketplace. At present, 15 states (including D.C.) run their own marketplaces; the rest rely on the federal marketplace,  Nevada transitioned to an SBM in 2020, and New Jersey and Pennsylvania have just opened new ones for 2021. Kentucky plans to revive its fabled SBM, Kynect, in 2022, after Republican Governor Matt Bevin shuttered it out of pure anti-ACA animus in 2017.  The trend is swinging back toward SBMs, in large part to capture the revenue marketplaces generate via user fees charged to participating insurers.  In states that use, this revenue goes to the federal government, which is supposed to tap it to fund enrollment assistance and outreach. The Trump administration gutted such outreach, however, by 84%, leaving enrollment assistance sorely underfunded.

A potentially transformative change to Section 1332 waivers would be to change the requirement of revenue neutrality to a per capita basis, so that a state would be rewarded for covering more people at equal or less cost person than in the default ACA structure. That would require legislation, and so is highly unlikely unless Democrats sweep the pending Georgia Senate runoffs and take control of the Senate. Absent such a change, though, a creative and decisive state can scrape up significantly more federal funding (and expired federal funding) to improve coverage than would have been possible under the pre-Trump ACA.

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  1. My feeling is the opposite on your proposal for state-based exchanges.

    I would actually get rid of all state-based exchanges. (The financial benefits to having a state exchange can be done by legislation.)

    And, although probably politically impossible, my ideal would have all Medicaid eligibility determination moved to the Federal Government, by the exchange.

    Although one might guess my rationale here as efficiencies of scale and avoidance of wasted redundancy--50 state exchanges and Medicaid agencies--the most critical reason is actually that it must be that states are bungling managing their own exchanges, and its coordination with Medicaid eligibility. I expect there are coverage gaps, and as well, people have to deal with Kafkaesque other problems causing them too much stress.

    Although I have seen a small bit of literature about coverage gaps from this kind of thing, my actual main data source is my own experience here in MA with the ACA. (MA has its own exchange, which operates often ineptly, and in limited and inadequate coordination with it's Medicaid agency.)

    Thus, 4 or 5 times, I've had threatened or actual coverage gaps. As well as other continuous problems.

    One such case: One time, the state decided to switch mid-year to newer cutpoints for Federal Poverty Level, which knocked me and about 1000 other people in MA to expanded Medicaid from subsidized on-exchange (cancelling the latter automatically) with only a few days notice. This could have bankrupted any of us had I been in the hospital at the time, with approved providers and procedures. (On this, I had actually researched the Federal exchange handling of such cases, and they will not cancel a payment-scheduled policy without authorization by the person covered, but the state of MA is clumsy enough to do so.)

    There have been a few other failures of coverage, such as at a point when, even though I had done everything right, 3 agents in a row at the state's agencies told me, that since they were to switch me up from expanded Medicaid to on-exchange subsidized, there would be a one or two month gap with no coverage, and "that's just how they do it." (I was able to avoid the actual gap happening only with intense screaming on our exchange's facebook page, on the Governor's facebook page, and in the newspaper comment sections.)

    At the moment, applying for new year's on-exchange last Sunday, something has gone wrong with the software in handling my scheduled autopay, and I was given incorrect information that this would resolved in 24 hours. It did not resolve. I found a higher-up to help, and it was supposed to be fixed again in a day, and me recontacted that next day. Again, not fixed yet. No call back.

    This, even if, as now, just a simple billing anomaly rather than a more serious systemic giving people coverage gaps from lack of coordination of expanded Medicaid and on-exchange plans, hits me every year, and I have to worry between every November through January as to whether my scheduled payments will be made, and what will happen if I am actually unable to attend to the checking and calling the exchange because I am in the hospital, or dare I travel.

    I am confident many states bungle their exchanges, and their expanded Medicaids. It doesn't get publicized, because it's different in each state, and the newspapers don't have adequate staff and skills to identify that it is happening.

    At least, if everything is unified on a single exchange, with a single national agency also doing all Medicaids, there is a larger national press to point out problems and get them fixed. Further, there are just scale issues that permit fixing. An exchange serving a country with 330 million people, rather than a state with 6 million or 1,000,000.

  2. As I've pointed out here before, the current ACA has serious problems, whether from the estate Recovery on expanded Medicaid and other ordinary health Medicaid still done in 10-14 states (including blue MA, NJ, MD) for people 55 and older, and, as well, real unaffordability problems for certain people.

    One can calculate, if you go to a state like IL on that allows the full 3:1 old-to-young premium ratios, that a couple say 62 years old, just over the 400% of Federal Poverty Level "subsidy cliff", has a premium plus oop max copay of 40% of income to worry about.

    (Note: Biden does have a proposal, G-d knows that it must be impossible to pass in the Senate, to mitigate this unaffordability, by at least capping maximum premium for all families to 8.5% of income.)

    Anyway, I was a little curious myself as to how, with this 40% of income needed currently in many cases (being so even if Medicaid were expanded in all states), how we compare to Canada on this. Since I do know Canada doesn't cover pharmaceuticals, and this could potentially cause similar financial problems over medical costs for people.

    So, I messaged a cousin in Ontario, and I got the details on the Ontario plan.

    The main plan is this:

    You'll see its essentially free of non-negligible copays, and it covers in-hospital medications.

    The conspicuous gaps are out-of-hospital Rx's, and, as well, hospital rooms may have more than two people, unless people have employer-based, or a purchased, supplemental, or the cash.

    If a person is really sick, the semi-private room seems dispensable to me, and note that people who would have employer insurance here would have an employer supplemental for semi-private up there. (And, people over 65 with a supplemental for Medicare here would have a supplemental for semi-private, or the cash for one, up there.)

    So the real issue is out=-of-hospital pharmaceuticals.

    Aaah. But, Ontario has a program (called "Trillium"; that pays for (up to $2. copays) all Rx above about 4% of AFTER-TAX income. Note that's more generous than if it were pre-tax income, like what ACA is based on, and what our some-cases 40% of income for premium plus max copay is.

    So, as I see it, in Ontario, worst-case: 4% of AFTER-TAX income to premium plus copay (actually, no premium though!). Us: 40 % of after-tax income. More than 10 X as much, and neglecting our surprise out-of-network bills.

    That's how pathetic we are on health insurance.

    This, only assuming the ACA holds at the Supreme Court, and it doesn't get repealed 4 years from now by the then-composition of our President and houses of Congress.